Europe’s securities watchdog, the European Securities and Markets Authority (ESMA), has embarked on a comprehensive review of regulations governing the inclusion of crypto assets in the Undertakings for Collective Investment in Transferable Securities (UCITS) Eligible Assets Directive (EAD).
Expanding Investment Horizons
ESMA’s initiative holds the potential to integrate cryptocurrencies into a vast investment market valued at approximately €12 trillion ($12.88 trillion). With the release of a Call for Evidence on May 7, 2024, ESMA seeks input from stakeholders to evaluate the feasibility and implications of allowing UCITS to incorporate cryptocurrencies.
Total crypto market cap, 1-week chart | Source: TOTAL on TradingView.com
The UCITS framework, pivotal in EU retail investment, constitutes about 75% of all retail investment in collective funds within the region. The inclusion of cryptocurrencies could signify a transformative shift, offering investors a broader array of investment options while upholding stringent regulatory standards.
Industry Perspectives
Financial regulation expert Sean Tuffy considers ESMA’s review as a potential “game changer,” marking a significant step in mainstreaming crypto assets in Europe. Industry experts anticipate enhanced portfolio diversification and returns through the integration of crypto assets into UCITS.
Challenges and Opportunities
While recognizing the benefits, lawyer Andrea Pantaleo underscores challenges in aligning custody regulations with the forthcoming Markets in Crypto-Assets regulation (MiCA). Coordination with MiCA will be crucial in ensuring the safekeeping of crypto assets within UCITS.
Consultation and Road Ahead
The consultation process, open until August 7, 2024, invites insights from various stakeholders. ESMA will collate feedback to develop technical advice for the European Commission, influencing the potential inclusion of cryptocurrencies in the UCITS framework and shaping the future of crypto investment in Europe.
